For some property investors, it's all about the yield but what does it mean and why is it a big deal?
What is rental yield?
Rental yield is essentially a measure of how much rental income an investment property generates over a year in relation to its price. A high rental yield suggests the property earns high rent relative to its value while a low yield suggests the opposite.
How to calculate rental yield
Rental yield can be calculated using the formula:
(Annual Rent ÷ Property Value) x 100
But rental yield can be expressed in two ways:
- gross (based on rent only, not taking into account other expenses of owning the property)
- net (accounting for all expenses of owning the property)
How to calculate gross rental yield
Add your weekly rental income up for the year to get your total annual rent
Divide the total annual rent by your property value
Multiply the figure by 100 to get your gross rental yield as a percentage
How to calculate net rental yield
Add up your investment property expenses for the year (things like rates, insurance, property management fees, body corporate charges, maintenance and repairs, etc.)
Add your weekly rental income up for the year to get your total annual rent
Subtract your annual expenses from your annual rent
Divide this figure by your property value
Multiply that figure by 100 to show your net rental yield as a percentage.
Net rental yield is often considered a more accurate measurement than gross rental yield as it gives a more complete picture.
Rental yield case study
Isaac is the proud owner of an investment property and wants to find out how it's tracking. The property is worth $600,000 and he charges $500 a week in rent.
To calculate gross rental yield, he multiplies his weekly rent ($500) by 52 to get the annual rental income ($26,000), divides this by the property value ($600,000), and multiples this figure by 100. His gross rental yield comes to 4.33%.
But Isaac realises this isn’t a great indicator of how his property has performed as he’s forked out some serious cash on expenses over the year.
This includes $2,000 on repairs, $500 on property management fees, and $3,000 on insurance, taking his total expenses to $5,500 for the year.
He subtracts his annual expenses ($5,500) from his annual rental income ($26,000), divides this by the property value ($600,000), and multiplies this figure by 100. His net rental yield comes to 3.42%.
What is a good rental yield?
In general terms, a gross rental yield of around 5% would be considered a good yield while a net yield of 3-4% would be considered an acceptable benchmark in Australia's major cities.
But some yields, particularly in regional and remote areas, can be considerably higher than this.
What constitutes a 'good' rental yield is subjective and can depend on the property investor's individual goals.
What can affect rental yield?
The obvious variables are:
- the rent you are charging
- your property's value
Other factors can include:
- location - properties in regional areas can often achieve higher yields than those in major cities due to lower property prices and scarcity of rental properties
- type of property - units can often achieve greater yields than houses because they are generally less costly
- the rental market - a glut or shortage of rental properties can exert downward or upward pressure on rents
- the property market - buying in a rising or falling property values can affect rental yield calculations
How can I find a property with a good rental yield?
This can come down to the age-old laws of supply vs demand.
Generally, look for suburbs with low rental vacancies and high rental demand. Then look for a property in close proximity to jobs, schools, transport, and amenities such as shops and services that tenants will want to rent.
Consider also the property type. Units may reap higher yields than houses due to their lower buy-in value but - take note - houses may offer greater long-term capital growth potential.
Property yield or capital growth?
This is the question property investors must ask themselves before they purchase. It can have a major bearing on the property they buy and help them make the best decisions based on their individual goals.
Good rental yield may help boost your income while a lower yield may hit your cash flow but bring greater tax benefits.
See also: How is rental income taxed?
But if you're looking to invest in property as a long-term proposition to sell it down the track for an increased value, rental yield may be less important than holding a property with good appreciation potential.
Some investors may be looking to achieve both objectives, but that can be a balancing act and you may not be effective at achieving either by compromising on both.
One investment strategy is not necessarily better than the other. It all depends on your personal goals as a property investor.
What types of properties have good rental yield?
Historically in Australia, properties in regional and rural areas tend to have higher rental yields than those in major cities.
See also: Top Australian suburbs for rental yield revealed: 2025
Some of the highest rental yields recorded - well into the double digits - have been in remote mining towns, generally during boom times.
As people flock to the towns to get a piece of the economic action on offer, competition for the usually limited stock of rental properties can see rents skyrocket on modestly priced homes. Such conditions tend to draw other investors to the town and property values also tend to escalate.
But these are generally volatile investments, dependent on short-term economic conditions. When such booms subside, rents tend to plummet as people leave town and it may be difficult to get tenants at all. The homes can also be worth much less than what investors paid to purchase them.
Aiming for 'good' - not highest - rental yield
As with most things, a balanced approach can be better. The highest rental yields tend to come with the highest risks. For example, buying a low-cost property in a bid to maximise rental yield may see investors purchase in less desirable areas.
It's not always the case but it may be difficult to find reliable tenants who pay their rent on time and look after the property as you would want.
Rental yield may be eroded by unpaid rent and excessive maintenance and repair costs which may negate the purpose of the investment in the first place. Such properties may also be harder to sell if you want to offload them.
What to look for in a high rental yield property
Here is a reliable checklist:
- in an area with low rental vacancies
- sought-after or up-and-coming suburb
- close to employment, schools, transport, amenities, and facilities
- possible benefit from any planned or future infrastructure projects that could create more employment or future demand in the area
- 'solid' property not prone to ongoing repair or maintenance issues
- units may offer higher yields than houses
- some element of tenant appeal over other rental properties, e.g. quiet street, separate laundry, extra parking, small complex for units
Hone in on a city or region, rather than a specific suburb. Start by identifying which city you want to invest in, then start looking at suburbs that match your price point. Focus on areas where demand is greater than supply, where there is good infrastructure, and where you believe prices are likely to grow over the long term. Once you have found the areas that meet these criteria, then analyse the average rent and look at rental yields. You'll be surprised how, even for the same price, different suburbs will give you different rental yields. 
What the expert says
How to improve rental yield
Purchasing the right type of property is the crucial starting point. Here are some ways you can feasibly increase the rental yield of a property you already own.
- Regularly adjust rent to market value - review and increase rent at every opportunity, within the bounds of state and territory rental laws of course
- Make upgrades tenants will be prepared to pay more for - cosmetic changes like fresh paint and floor coverings, or more substantial makeovers of kitchens, bathrooms, and outdoor spaces, bring the best rental returns (these are also generally claimable on tax)
- Supplying conveniences - adding air conditioning, a dishwasher, automatic garage opening devices, etc. can boost (although remember you will generally be responsible for their maintenance)
- Allowing pets - this can widen the pool of tenants vying for your property and may boost the rent you can ask for
Getting the right investor home loan
If you're in the market for an investment property, you'll also likely be in the market for an investor home loan. The loans on the table below have some of the most competitive rates on the market:
Buying an investment property or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for investors.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.24% p.a. | 6.28% p.a. | $3,075 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
6.04% p.a. | 5.95% p.a. | $3,011 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
6.14% p.a. | 6.16% p.a. | $3,043 | Principal & Interest | Variable | $0 | $350 | 60% |
